Fed's Policy Meetings Need Fuller, More-Timely Scrutiny
LAST March I asked my colleagues in Congress: Under the following circumstances, would you vote to give the Federal Reserve a $33 billion line of credit that will be used to lend money to foreign countries? You have nothing to say about who gets the money, you can put no conditions on the loans, and you have to abdicate your congressional oversight role. In addition, the General Accounting Office, the nonpartisan investigative arm of Congress, is prevented by law from any examination of these foreign transactions. The records of the expenditures are intentionally vague and, at times, purposely misleading.
This isn't fantasy, it is happening today. The Federal Reserve has for years been lending money to foreign countries without congressional input or consent, through its $33 billion swap fund. Despite the Fed's ``keep your nose out of my business'' attitude, Congress cannot relinquish its oversight responsibilities.
The nation's money supply is controlled by the Fed's seven governors and by five of the 12 regional Federal Reserve Bank presidents. As members of the Federal Open Market Committee (FOMC), they decide whether to increase or decrease the nation's money supply. Where do they get the money? They can order unlimited amounts from the US Treasury Department. The FOMC's actions affect everyone. Shifts in monetary policy affect inflation, employment, interest rates, and the value of our currency on foreign-exchange markets.
How much do the Congress and the American public know about FOMC members?
Congress examines the board of governors' credentials and their views on monetary policy because nominees to the board go through a Senate confirmation process. However, Congress knows less about the views, the credentials, or even possible conflicts of interest of the regional presidents who also serve on the FOMC. These officials are selected within the regional Fed banks. Congress, the public, and the press never get the opportunity to scrutinize their views or history. And yet these internally selected officials have immense power over our lives.
FOMC members recently joined the United States Treasury in extending to Mexico a $6 billion line of credit as part of a $9 billion package that included contributions from the Mexican and Canadian governments. FOMC members voted to increase the $700 million line of credit for Mexico they had previously approved to $3 billion. This $3 billion line of credit is a loan from the Fed -
money that, unlike the Treasury's $3 billion contribution, never was approved by Congress.
Although the secretive Fed would want otherwise, Congress has a right - and a duty - to oversee the central bank's operations and the foreign-currency operations of the Treasury. Unfortunately, Congress is not privy to the full details of the agency's recent intervention in foreign-currency markets. According to the US Constitution, the Congress has the right to insist on a full accounting of these operations. Article 1, Section 9 states: ``No money shall be drawn from the Treasury, but in consequence of appropriations made by law; and a regular statement and account of the receipts and expenditures of all public money shall be published from time to time.''
It is essential that Congress and the American public have complete accountability for the use of tax dollars. Extending lines of credit to foreign governments and diving headlong into world currency bazaars in order to shore up a country's sagging currency could prove risky to the American taxpayer. It is indisputable that Congress and the public have the right to know all the conditions surrounding these important decisions.
Unfortunately, the Fed does not share this view. If anything, the Fed goes to great lengths to block access to information about its actions and policies. The Fed refuses to release the complete minutes of its FOMC meeting so that the public can learn what each of the individual FOMC members said about foreign loans and lines of credit or even domestic monetary policy. Unfortunately, only incomplete summaries of the FOMC meetings, with no attribution of individual members' views, is publicly released within five or six weeks. The incomplete summary of the March 22, 1994, FOMC meeting released May 20 noted that J. Alfred Broaddus Jr., president of the Federal Reserve Bank of Richmond, voted against enlarging the line of credit to Mexico to $3 billion on a permanent basis ``because he was concerned about the appropriateness of the System's involvement in this type of foreign-currency operation.'' What are the concerns he raised? I have asked Chairman Alan Greenspan to tell the Banking Committee.
The Fed does not release complete minutes of its meetings until five years after the fact. This is too long to wait. I am sponsoring legislation, the ``Federal Reserve System Accountability Act of 1993,'' which requires the Fed to release within 60 days of its last FOMC meeting complete minutes of the meeting. The American taxpayer should demand no less. This reform does not reduce the Fed's independence. It does provide fuller accountability, which means greater understanding of the basis for the Fed's monetary policies and a necessary record to determine if government officials have acted in the public interest. The Opinion/Essay Page welcomes manuscripts. Authors of articles we accept will be notified by telephone. Authors of articles not accepted will be notified by postcard. Send manuscripts by mail to Opinions/Essays, One Norway Street, Boston, MA 02115, by fax to 617 -450-2317, or by Internet E-mail to OPED@RACHEL.CSPS.COM.